PICO Ltd is a manufacturer of picnic tables of varying sizes. It is considering switching to the ABC system. As its management accountant, identify two (2) potential activity-based costing pools for PICO Ltd and their appropriate cost drivers?

PICO Ltd is a manufacturer of picnic tables of varying sizes. It is considering switching to the ABC system. As its management accountant, identify two (2) potential activity-based costing pools for PICO Ltd and their appropriate cost drivers?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit. Overhead expenses depend upon the nature of the business operations.

Question

Definition Definition Process by which financial information is analyzed, interpreted, and communicated to managers to support the achievement of an organization's goals. The main objective of managerial accounting is to maximize profits and minimize losses.

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The directors of GHJ Ltd are considering the introduction of activity-based costing (ABC). A trainee manager has asked which of the following comments about the calculation of overhead cost using ABC are not correct: 1. Each cost will have a unique, identifiable, cost driver2. The volume of activity does not influence cost3. The overhead cost calculated using ABC will always be significantly different from the overhead cost calculated using absorption costing a) 2 and 3 b) 1 and 2 c) 1 and 3 d) 1, 2, and 3
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